[The Editors' Verdict] 'One Year Since the Ra Deok-yeon Gate'... 'Investor Compensation' Exists in the US, but Not in Korea

Support for Class Action System is the First Step
Prioritize Victim Compensation Above All Else

The mother's loss amounted to 10 billion won, and each of her children also incurred debts in the billions. This is the scale of damage suffered by a family plunged into debt due to the sudden stock price crash of eight stocks on April 24 last year. The reality behind the stock price crash was stock price manipulation. This is the so-called 'Ra Deok-yeon Gate.' Although it has been 'already' one year, the path to resolution remains arduous. On the 7th, the prosecution indicted an additional 41 people without detention, bringing the total number of defendants to 56. Fifteen people, including CEO Ra Deok-yeon, are currently undergoing first trial, denying the charges, so the purpose and intent of market manipulation must be proven during the trial. The total illicit gains they obtained amount to 730.5 billion won. This is the largest stock price manipulation organization in history and boasts the largest scale among related crimes.

The hearts of victims watching the unprecedented stock price manipulation trial, where 8 trillion won vanished in just four days, are burning with anguish. Investment is a personal choice and should not undermine the principle of individual responsibility. However, stock investment has become a nationwide financial tool, and intelligent and organized securities crimes are increasing day by day. As the capital market grows quantitatively, systemic measures for victim compensation are absolutely necessary. The fact that structural corruption involving external experts threatening the capital market order?such as lawyers and accountants reduced to advisory roles in the Ra Deok-yeon Gate, commercial banks serving as funding channels, and employees of securities firms?has been confirmed is also a justification for the need for victim compensation measures.

In July last year, the National Assembly amended the Capital Markets Act. Previously, only criminal penalties such as fines and imprisonment were possible for unfair trading, but now, administrative fines of up to twice the illicit gains obtained from unfair trading, or up to 4 billion won if illicit gains are absent or difficult to calculate, can be imposed. When unfair practices in the capital market are detected, imposing economic sanctions such as criminal penalties, recovery of illicit gains, and hefty administrative fines enhances the deterrent effect against crimes. While it is significant that monetary sanctions with high effectiveness were introduced to complement the limitations of criminal penalties, there was no provision for victim compensation anywhere.

Currently, litigation is the only option. The amount claimable through civil lawsuits is limited to actual damages, but litigation costs are relatively high. This is why lawsuits are extremely rare. The securities-related class action law enacted in 2005 is also ineffective. Since its introduction, there have been only about 11 lawsuits up to last year. In class actions, victims must present evidence, but since it is almost impossible to secure materials, filing lawsuits itself is difficult.

The U.S. Securities and Exchange Commission (SEC) establishes Fair Funds by pooling disgorged profits and civil penalties (administrative fines) to distribute to victims instead of reverting them to the treasury. As of 2022, 6.439 billion dollars (approximately 8.6 trillion won) have been accumulated in the fund, and 937 million dollars (approximately 1.25 trillion won) have been returned to investors.

Establishing a Korean-style Fair Fund requires extensive discussion. Therefore, the first step is to improve the class action system so that it can contribute to victim compensation immediately. Since the burden of proof lies with the plaintiff and failure to provide adequate evidence results in losing the case, support measures to facilitate the provision of materials necessary to prove damages must be prioritized.

The reason the Asia Economy Securities Capital Market Department has formed a special coverage team to start a series of reports in March is to ensure that the message of relentlessly pursuing illicit gains so that no criminal proceeds are pocketed is clearly conveyed to suppress unfair trading. It is to build a system capable of detection and investigation, urge additional institutional improvements for swift and strict sanctions, and establish victim compensation measures. Compensation for damages must be placed as the highest priority. We hope the capital market will become one that does its utmost to protect investors.

This content was produced with the assistance of AI translation services.